Troubled Tenant Bruises Earnings at Physicians Realty Trust

For Physicians Realty Trust (NYSE: DOC), the end of 2016 was a mixed bag.

The Milwaukee, Wisconsin-based self-managed health care real estate investment trust (REIT) currently owns almost 11 million square feet of real estate that’s more than 96% leased for an average lease term of about 8.5 years, CEO John Thomas said during the company’s fourth-quarter 2016 earnings call on Friday.

Overall, Thomas expressed pleasure with the company’s performance in 2016.

“We are pleased to report a record-setting year for Physicians Realty Trust,” Thomas said. “We completed almost $1.3 billion in new investments in 2016 and our consistent fast growth in medical office facilities continues on into 2017.”

Still, not all of the REIT’s news was good news. The company’s fourth-quarter 2016 revenue of $73.7 million missed analysts’ expectations by about $810,000, despite being up 82.2% year-over-year. The company’s earnings per share of 6 cents, meanwhile, missed analysts’ expectations by 4 cents.

The company expanded upon some of its recent hardships. Last quarter, for instance, the company was unable to collect $3.7 million in rent from Foundation Healthcare, a hospital management company that rents two physician joint venture hospitals owned by Physicians Realty Trust in Texas.

“Foundation Healthcare… suffered unexpected operating losses in the second half of 2016 due primarily to lawsuits and management’s focus on a hospital investment in Houston, Texas,” Thomas said. “We had no involvement in that Houston asset. Unfortunately, Foundation’s lawsuits and attention to that hospital impacted their ability to support their physician joint venture hospitals in El Paso and San Antonio, Texas, that we own.”

Physicians Realty Trust is collaborating with Foundation to try to sell these two hospitals, Thomas explained.

“We’ve been working with Foundation and most importantly, the physician co-owners of those hospitals in San Antonia and El Paso to transition management and eventually Foundation’s ownerships in each of those hospitals,” Thomas said.

Catholic Health Initiatives relationship

Mark Theine, Physicians Realty Trusts’ senior vice president, assets and investment management, also gave an update on the REIT’s relationship with Catholic Health Initiatives (CHI) during the earnings call.

So far, the REIT has completed the purchase of 49 of the properties in the CHI portfolio, Theine said. This year, Physicians Realty Trust expects to buy a newly built medical office building in Omaha, Nebraska, that’s 100% leased to CHI affiliate Creighton University Medical Center for $33.4 million, as well as a 100% leased medical office building in Fruitland, Idaho, for $4.5 million.

Physicians Realty Trust also chose not to acquire two facilities from CHI during the due diligence process.

The REIT expects to spend a total of between $800 million and $1 billion on new acquisitions in 2017, CFO Jeff Theiler said during the earnings call.

Written by Mary Kate Nelson